FMG believed contracts were binding, court hears

Lawyers for billionaire Andrew Forrest maintain an agreement with Chinese parties to build infrastructure for Fortescue Metals Group were binding.

A five-week trial bought by the Australian Securities and Investment Commission against Mr Forrest and Fortescue Metals Group, the company he founded, concluded in the Federal Court in Perth today.

Justice John Gilmour has reserved his decision in the case.

ASIC accused the miner of misleading and deceptive conduct by overstating the nature of so-called binding agreements in late 2004, which were later revealed to be "framework agreements" ahead of further legally binding contracts.

ASIC also alleges Fortescue broke the law by failing to update the stock market when the deals unravelled, a requirement under continuous disclosure obligations.

Mr Forrest's lawyer, Allan Myers QC, referred to a web of internal emails between his client and Fortescue staff, as well as letters between the company and Chinese parties.

Mr Myers said the Chinese parties had tried and failed to tie framework agreements to equity, which was not part of the original agreement.

He told the court Mr Forrest had emailed other Fortescue staff in October 2004, informing them an agreement with the Chinese Railway Engineering Corporation was non-binding but would be binding by October 20 of that year.

Mr Myers said the build and transfer framework agreement between the parties for the port and rail infrastructure had been agreed in a memorandum of understanding between the parties.

A March 2005 article in the Australian Financial Review, which forced the miner to concede its deal with the China Metallurgical Construction Corporation had collapsed, came as "a complete bombshell", Mr Myers said.

Fortescue conceded to the market later that month the deals were "framework agreements", effectively agreements to talk further.

Mr Myers said Mr Forrest and Fortescue directors "believed the agreements were binding".

"The actions of my client and FMG in all this... were honest and reasonable in the circumstances of this case."

Fortescue and Mr Forrest face maximum civil penalties of $6 million and $4.4 million respectively.